Policy Issues Alert: California Supreme Court Rules That Insurance Companies Have To Pay "All Sums" And Stack All Years Of Coverage In A Landmark Win For The State of California, Policyholders, And The Environment


Anderson Kill



August 9, 2012 - The California Supreme Court released its decision on August 9, 2012, in State of California v. Continental Insurance Company et al., an insurance coverage dispute concerning the massive environmental cleanup of the Stringfellow Waste Site.  The decision addressed the important insurance coverage issues of whether insurance companies must honor policy language promising to pay "all sums" up to policy limits to redress a loss stemming from a covered occurrence, and whether those obligations in policies spanning multiple serial years can be stacked.  The Supreme Court answered those questions as follows:

This case considers complex questions of insurance policy coverage interpretation in connection with a federal court-ordered cleanup of the state’s Stringfellow Acid Pits waste site.  We initially address the “ ‘continuous injury’ trigger of coverage,” as that principle was explained in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 655 (Montrose) and the “all sums” rule adopted in Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 55-57 (Aerojet), and conclude that the principles announced in those cases apply to the insurers’ indemnity obligations in this case, so long as the insurers insured the subject property at some point in time during the loss itself.

Because we conclude that the continuous injury trigger and all sums rule apply to the duty to indemnify here, we must also determine how best to allocate the indemnity duty among the insurers responsible for covering the property loss.  As we explain, we conclude that the Court of Appeal below correctly applied the “all-sums-with-stacking” allocation rule.  We therefore affirm the judgment of the Court of Appeal.

The court elaborated its reasoning as follows:

An all-sums-with-stacking rule has numerous advantages. It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. It also comports with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage. All-sums-with-stacking coverage allocation ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct periods of injury.

The State of California is represented by Deputy Attorney General Darryl Doke, Deputy Attorney General Jill Scally, Robert Horkovich, Ted Stein, Robert Chung and Cort Malone of Anderson Kill & Olick, Roger Simpson in Fountain Valley, California, and Dan Schultz of Tempe, Arizona.

For a copy of the decision, please click here.

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Insurance and Risk Management